Megaprojects are significant priority factors in the development and expansion of Mongolia’s economy. Nevertheless, Mongolia faces the same mega-project challenges that are being experienced around the globe.
Since 1990, the largest and most successful project in Mongolia is the Oyu Tolgoi project. The conflict between stakeholders, the Mongolian government, and Rio Tinto led to occasional negotiations due to project cost increases over initial projections as well as the delays in the project schedule of this major underground development which holds 80% of total reserves.
Another example is an oil refinery project, which is under development with the help of US$1.2 billion in soft loans from the Government of India, which commenced construction in 2019. The refinery was scheduled to open in 2024 according to initial estimates. Though the Covid-19 pandemic caused several disruptions and the critical negotiations to finance the oil pipeline between the refinery and oil deposits have stalled.
The Erdeneburen hydropower plant is one of the recent cases. It is planned to be built on the Khovd River in western Mongolia. The project, which has a designed installed capacity of 90 megawatts and the capacity to generate 366 million kWh a year, will supply power to five provinces. This China-financed project has faced popular opposition due to environmental concerns and local community livelihood disruption.
A similar prominent case is the Egiin Gol Power Plant, which initially began in 1991 and was funded by China’s government but faced environmental opposition from Russia. After 16 years of back and forth and wasted efforts and time, it was finally stopped in 2007.
The key mega-project challenges in Mongolia can be categorized as follows:
Political risks:
The average implementation period of a mega project is 6-8 years, including the strategic planning, construction, and operational phases. But this does not align with Mongolia’s political cycle. Both Parliament and the Cabinet have a four-year term, and the Cabinet has a de facto cycle of 1.8 years. This can cause significant problems in policy succession and delays in decision-making. Politicians show no interest in advancing a megaproject during their term if it is not in their best interests.
Geopolitical risks:
Given Mongolia’s location between the giant neighbors of Russia and China, megaprojects sometimes involve the interests of these two countries.
Timing risks:
The majority of megaprojects in Mongolia are related to mining extraction and export. Therefore, the ability to attract foreign investment is usually correlated with favorable commodity prices in global markets at any time.
Public support:
Most people have never set foot in Mongolia’s pristine territory, where nature remains undisturbed. This becomes a factor for discussion among the locals, given the huge awareness of the negative impact of major mining and energy projects which can lead to a public backlash. To win votes from the public, populist politicians tend to diminish the reputation of megaprojects in their messaging, a factor that can be a major challenge for operating companies.